NAME: MACALINAO, ROMIELYN, P.

SUBJECT: CORPORATION LAW ATTY. NIERE - SATURDAY 6:30 - 9:00 pm

TITLE: GAMBOA V. TEVES

REFERENCE: G.R. No. 176579 June 28, 2011
FACTS
Act No. 3436 was enacted which granted PLDT a franchise and the right to engage in
telecommunications business. In 1969, General Telephone and Electronics Corporation (GTE), an
American company and a major PLDT stockholder, sold 26 percent of the outstanding common shares of
PLDT to PTIC.
In 1977, Prime Holdings, Inc. (PHI) became the owner of 111,415 shares of stock of PTIC by virtue
of three Deeds of Assignment executed by PTIC stockholders.
The 111,415 shares of stock which represented 46.125% of the outstanding captial stock of PTIC
were sequestered by PCGG and later declared to be property of the Republic of the Phil.
In 1999, First Pacific, a Hong Kong-based investment firm, acquired the remaining 54% of the
outstanding capital stock of PTIC.
The Philippine Government decided to sell the 111,415 PTIC share in a bidding. They notified First
Pacific, the majority owner of PTIC shares, of the bidding results and gave First Pacific to exercise its right
of first refusal. In 2007, First Pacific bought the 46.125% of the outstanding capital stock of PTIC, with the
Philippine Government. Since PTIC is a stockholder of PLDT, the sale by the Philippine Government of
46.125% of PTIC shares is actually an indirect sale of about 6.3% of the outstanding common shares of
PLDT. With the sale, the common shareholdings of foreigners in PLDT increased to about 81.47%. This
violates Section 11, Article XII of the 1987 Philippine Constitution which limits foreign ownership of the
capital of a public utility to not more than 40%.
petitioner filed the instant petition for prohibition, injunction, declaratory relief, and declaration
of nullity of sale of the 111,415 PTIC shares. That the sale would result to a total foreign common
shareholdings in PLDT of 51.56% which is over the 40% constitutional limit. He contended that this
violated Section 11, Article XII of the 1987 Constitution which limits foreign ownership of the capital of a
public utility to not more that 40%, to wit:
“Section 11. No franchise, certificate, or any other form of authorization for the
operation of a public utility shall be granted except to citizens of the Philippines or to corporations
or associations organized under the laws of the Philippines, at least sixty per centum of whose
capital is owned by such citizens; xxx
ISSUES
1. Whether or not the sale violated the foreign ownership limit for public utilities prescribed by the
Constitution?
2. Whether or not the term “capital” in Section 11, Article XII of the Constitution refers to the total
common shares only or to the total outstanding capital stock?
RULINGS
1. Yes.
 The sale violated the foreign ownership limit in PLDT. The term capital refers only to common
shares entitled to vote.
Considering that common shares have voting rights which translate to control, as opposed to
preferred shares which usually have no voting rights, the term “capital” in Section 11, Article XII of the
Constitution refers only to common shares. However, if the preferred shares also have the right to vote
in the election of directors, then the term “capital” shall include such preferred shares because the right
to participate in the control or management of the corporation is exercised through the right to vote in
the election of directors. In short, the term “capital” in Section 11, Article XII of the Constitution refers
only to shares of stock that can vote in the election of directors.
The evident purpose of the citizenship requirement is to prevent aliens from assuming control of
public utilities, which may be inimical to the national interest. This specific provision explicitly reserves to
Filipino citizens control of public utilities, pursuant to an overriding economic goal of the 1987
Constitution: to “conserve and develop our patrimony” and ensure “a self-reliant and independent
national economy effectively controlled by Filipinos.”
Hence, for a corporation to be granted authority to operate a public utility, at least 60 percent of
its “capital” must be owned by Filipino citizens.
3. The term “capital” in Section 11, Article XII of the Constitution refers only to shares of stock
entitled to vote in the election of directors, and thus in the present case only to common shares, and not
to the total outstanding capital stock comprising both common and non-voting preferred shares.
The Corporation Code of the Philippines classifies shares as common or preferred, thus:
Sec. 6. Classification of shares.—The shares of stock of stock corporations may be divided into
classes or series of shares, or both, any of which classes or series of shares may have such rights, privileges
or restrictions as may be stated in the articles of incorporation: Provided, That no share may be deprived
of voting rights except those classified and issued as “preferred” or “redeemable” shares, unless
otherwise provided in this Code xxx
Indisputably, construing the term “capital” in Section 11, Article XII of the Constitution to include
both voting and non-voting shares will result in the abject surrender of our telecommunications industry
to foreigners, amounting to a clear abdication of the State’s constitutional duty to limit control of public
utilities to Filipino citizens. Such an interpretation certainly runs counter to the constitutional provision
reserving certain areas of investment to Filipino citizens, such as the exploitation of natural resources
as well as the ownership of land, educational institutions and advertising businesses.
In fact, under the Corporation Code only preferred or redeemable shares can be deprived of the
right to vote.46 Common shares cannot be deprived of the right to vote in any corporate meeting, and
any provision in the articles of incorporation restricting the right of common shareholders to vote is
invalid.
60 percent of the “capital” assumes, or should result in, “controlling interest” in the corporation.
Reinforcing this interpretation of the term “capital,” as referring to controlling interest or shares entitled
to vote, is the definition of a “Philippine national” in the Foreign Investments Act of 1991 which
emphasizes that mere legal title is insufficient to meet the 60 percent Filipino-owned “capital” required
in the Constitution. Full beneficial ownership of 60 percent of the outstanding capital stock, coupled
with 60 percent of the voting rights, is required. The legal and beneficial ownership of 60 percent of the
outstanding capital stock must rest in the hands of Filipino nationals in accordance with the
constitutional mandate. Otherwise, the corporation is “considered as non-Philippine nationals.
TITLE: LIVESEY VS. BINSWANGER PHILIPPINES, INC. AND KEITH ELLIOT
REFERENCE: G.R. No. 177493, 19 March 2014
FACTS
Livesey filed a complaint for illegal dismissal with money claims against Chesterton Blumenauer
Binswanger Philippines Strategic Property Services, Inc. (CBB) and Keith Elliot. CBB was a domestic
corporation engaged in real estate brokerage and Keith Elliot was its President. Livesey alleged that CBB
failed to pay him a significant portion of his salary. For this reason, he was compelled to resign. He claimed
CBB owed him unpaid salaries. CBB denied liability. It alleged that it engaged Livesey as a corporate officer.
It claimed that Livesey was later designated as Managing Director when it became an extension office of
its principal in Hongkong. CBB posited that the labor arbiter (LA) had no jurisdiction as the complaint
involved an intra–corporate dispute. LA ordered CBB to reinstate Livesey to his former position as
Managing Director and to pay him US$23,000.00 in accrued salaries.
The parties entered into a compromise agreement. Under the agreement, Livesey was to receive
US$31,000.00. Further, the agreement provided that unless and until the agreement is fully satisfied, CBB
shall not sell, alienate, or otherwise dispose of all or substantially all of its assets or business; suspend its
business operations; substantially change the nature of its business; and declare bankruptcy or insolvency.
CBB made an initial payment to Livesey but not the next two installments as the company ceased
operations. Livesey moved for the issuance of a writ of execution. He learned that CBB, in a clear and
willful attempt to avoid their liabilities to complainant x x x have organized another corporation,
[Binswanger] Philippines. He claimed that there was evidence showing that CBB and Binswanger
Philippines, Inc. (Binswanger) are one and the same corporation. Invoking the doctrine of piercing the veil
of corporate fiction, Livesey prayed that an alias writ of execution be issued against respondents
Binswanger and Keith Elliot, CBB’s former President. LA denied Livesey’s motion for an alias writ of
execution. He explained that the stockholders of the two corporations were not the same. Livesey filed
an appeal which the NLRC granted, reversing the LA Laderas’ order. The Binswanger and Elliot moved for
reconsideration. The NLRC denied the motion. They then sought relief from the CA through a petition for
certiorari. The CA granted the petition and reversed the NLRC decision. Livesey moved for reconsideration,
but the CA denied the motion.
Livesey prays for a reversal of the CA rulings on the basis of the following arguments: The CA erred
in not applying the doctrine of piercing the veil of corporate fiction to the case. He insists that CBB and
Binswanger are one and the same corporation as shown by the “overwhelming evidence” (a) CBB stands
for “Chesterton Blumenauer Binswanger, (b) After executing the compromise agreement with him,
through Elliot, CBB ceased operations following a transaction where a substantial amount of CBB shares
changed hands (c) Summons served on Binswanger in an earlier labor case was received by Binswanger
using CBB’s receiving stamp (d) In a letter dated, Elliot noted a Binswanger bid solicitation for a project
with the Philippine National Bank (PNB) which was actually a CBB project as shown by a CBB draft (e) Hazel
de Guzman who also filed an illegal dismissal case against the company, attested that Elliot told her of
CBB’s plan to close the corporation and to organize another for the purpose of evading CBB’s liabilities.
Livesey posits that the closure of CBB and its immediate replacement by Binswanger could not have been
possible without Elliot’s guiding hand, such that when CBB ceased operations, Elliot (CBB’s President and
CEO) moved to Binswanger in the same position.
ISSUES
Whether the doctrine of piercing the veil of corporate fiction is applicable?
 RULING
YES.
It has long been settled that the law vests a corporation with a personality distinct and separate
from its stockholders or members. In the same vein, a corporation, by legal fiction and convenience, is
an entity shielded by a protective mantle and imbued by law with a character alien to the persons
comprising it. Nonetheless, the shield is not at all times impenetrable and cannot be extended to a point
beyond its reason and policy. Circumstances might deny a claim for corporate personality, under the
“doctrine of piercing the veil of corporate fiction.”
Piercing the veil of corporate fiction is an equitable doctrine developed to address situations
where the separate corporate personality of a corporation is abused or used for wrongful purposes.
Under the doctrine, the corporate existence may be disregarded where the entity is formed or used for
non-legitimate purposes, such as to evade a just and due obligation, or to justify a wrong, to shield or
perpetrate fraud or to carry out similar or inequitable considerations, other unjustifiable aims or
intentions, in which case, the fiction will be disregarded and the individuals composing it and the two
corporations will be treated as identical.
In the present case, the Court sees an indubitable link between CBB’s closure and Binswanger’s
incorporation. CBB ceased to exist only in name; it re–emerged in the person of Binswanger for an urgent
purpose — to avoid payment by CBB of the last two installments of its monetary obligation to Livesey, as
well as its other financial liabilities. It was not just coincidence that Binswanger is engaged in the same
line of business CBB embarked on: (1) it even holds office in the very same building and on the very same
floor where CBB once stood; (2) CBB’s key officers, Elliot, no less, and Catral moved over to Binswanger
(3) the use of Binswanger of CBB’s paraphernalia (receiving stamp) (4) Binswanger’s takeover of CBB’s
project with the PNB.
While the ostensible reason for Binswanger’s establishment is to continue CBB’s business
operations in the Philippines, which by itself is not illegal, the close proximity between CBB’s
disestablishment and Binswanger’s coming into existence was to evade CBB’s unfulfilled financial
obligation to Livesey under the compromise agreement.
Thus, applying the “doctrine of piercing the veil of corporate fiction”, the Court finds Elliot as liable
as Binswanger for CBB’s unfulfilled obligation to Livesey.
TITLE: NARRA NICKEL MINING AND DEVELOPMENT CORP. VS. REDMONT CONSOLIDATED MINES CORP.
REFERENCE: G.R. No. 195580, April 21, 2014
FACTS
Sometime in December 2006, respondent Redmont Consolidated Mines Corp. (Redmont), a
domestic corporation organized and existing under Philippine laws, took interest in mining and exploring
certain areas of the province of Palawan. After inquiring with the Department of Environment and Natural
Resources (DENR), it learned that the areas where it wanted to undertake exploration and mining
activities were already covered by Mineral Production Sharing Agreement (MPSA) applications of
petitioners Narra, Tesoro and McArthur.
Petitioner McArthur Narra and Tesoro, filed an application for an MPSA and Exploration Permit
(EP) which was subsequently issued.
Redmont filed before the Panel of Arbitrators (POA) of the DENR three (3) separate petitions for
the denial of petitioners’ applications for MPSA.
Redmont alleged that at least 60% of the capital stock of McArthur, Tesoro and Narra are owned
and controlled by MBMI Resources, Inc. (MBMI), a 100% Canadian corporation. Redmont reasoned that
since MBMI is a considerable stockholder of petitioners, it was the driving force behind petitioners’ filing
of the MPSAs over the areas covered by applications since it knows that it can only participate in mining
activities through corporations which are deemed Filipino citizens. Redmont argued that given that
petitioners’ capital stocks were mostly owned by MBMI, they were likewise disqualified from engaging in
mining activities through MPSAs, which are reserved only for Filipino citizens.
McArthur Mining, Inc., is composed, among others, by Madridejos Mining Corporation (Filipino)
owning 5,997 out of 10,000 shares, and MBMI Resources, Inc. (Canadian) owning 3,998 out of 10,000
shares; MBMI also owns 3,331 out of 10,000 shares of Madridejos Mining Corporation;
Tesoro and Mining and Development, Inc., is composed, among others, by Sara Marie Mining, Inc.
(Filipino) owning 5,997 out of 10,000 shares, and MBMI Resources, Inc. (Canadian) owning 3,998 out of
10,000 shares; MBMI also owns 3,331 out of 10,000 shares of Sara Marie Mining, Inc.;
Narra Nickel Mining and Development Corporation, is composed, among others, by Patricia Louise
Mining & Development Corporation (Filipino) owning 5,997 out of 10,000 shares, and MBMI Resources,
Inc. (Canadian) owning 3,998 out of 10,000 shares; MBMI also owns 3,396 out of 10,000 shares of Patricia
Louise Mining & Development Corporation;
Petitioners averred that they were qualified persons under Section 3 of RA 7942 or the Philippine
Mining Act of 1995. They stated that their nationality as applicants is immaterial because they also applied
for Financial or Technical Assistance Agreements (FTAA) which are granted to foreign-owned
corporations. Nevertheless, they claimed that the issue on nationality should not be raised since
McArthur, Tesoro and Narra are in fact Philippine Nationals as 60% of their capital is owned by citizens
of the Philippines.
POA issued a Resolution disqualifying petitioners from gaining MPSAs. The POA considered
petitioners as foreign corporations being "effectively controlled" by MBMI, a 100% Canadian company
and declared their MPSAs null and void.
Pending the resolution of the appeal filed by petitioners with the Mines Adjudication Board
(MAB), Redmont filed a Complaint with the SEC, seeking the revocation of the certificates for registration
of petitioners on the ground that they are foreign-owned or controlled corporations engaged in mining
in violation of Philippine laws.
MAB issued an Order reversing the resolution of POA, hence, the petition for review filed by
Redmont before the CA, assailing the Orders issued by the MAB.
CA found that there was doubt as to the nationality of petitioners when it realized that
petitioners had a common major investor, MBMI, a corporation composed of 100% Canadians. Pursuant
to the first sentence of paragraph 7 of DOJ Opinion No. 020, Series of 2005, adopting the 1967 SEC Rules
which implemented the requirement of the Constitution and other laws pertaining to the exploitation of
natural resources, the CA used the "grandfather rule" to determine the nationality of petitioners.
In determining the nationality of petitioners, the CA looked into their corporate structures and
their corresponding common shareholders. Using the grandfather rule, the CA discovered that MBMI in
effect owned majority of the common stocks of the petitioners as well as at least 60% equity interest of
other majority shareholders of petitioners through joint venture agreements. The CA found that through
a "web of corporate layering, it is clear that one common controlling investor in all mining corporations
involved is MBMI." Thus, it concluded that petitioners McArthur, Tesoro and Narra are also in partnership
with, or privies-in-interest of, MBMI.
ISSUES
Whether or not petitioner corporations are Filipino and can validly be issued MPSA?
Whether or not the CA’s ruling that Narra, Tesoro and McArthur are foreign corporations based
on the "Grandfather Rule" is contrary to law, particularly the express mandate of the Foreign Investments
Act of 1991, as amended, and the FIA Rules?
RULING
Both NO.
There are two acknowledged tests in determining the nationality of a corporation: the control
test and the grandfather rule. Paragraph 7 of DOJ Opinion No. 020, Series of 2005, adopting the 1967 SEC
Rules which implemented the requirement of the Constitution and other laws pertaining to the controlling
interests in enterprises engaged in the exploitation of natural resources owned by Filipino citizens,
provides:
Shares belonging to corporations or partnerships at least 60% of the capital of which is
owned by Filipino citizens shall be considered as of Philippine nationality (CONTROL TEST), but
if the percentage of Filipino ownership in the corporation or partnership is less than 60%, only
the number of shares corresponding to such percentage shall be counted as of Philippine
nationality (GRANDFATHER RULE). Thus, if 100,000 shares are registered in the name of a
corporation or partnership at least 60% of the capital stock or capital, respectively, of which
belong to Filipino citizens, all of the shares shall be recorded as owned by Filipinos. But if less than
60%, or say, 50% of the capital stock or capital of the corporation or partnership, respectively,
belongs to Filipino citizens, only 50,000 shares shall be counted as owned by Filipinos and the
other 50,000 shall be recorded as belonging to aliens.
Petitioners contention: The grandfather rule, petitioners reasoned, has no leg to stand on in the
instant case since the definition of a "Philippine National" under Sec. 3 of the FIA does not provide for it.
They further claim that the grandfather rule "has been abandoned and is no longer the applicable rule."
They also opined that the last portion of Sec. 3 of the FIA admits the application of a "corporate layering"
scheme of corporations. Petitioners claim that the clear and unambiguous wordings of the statute
preclude the court from construing it and prevent the court’s use of discretion in applying the law. They
said that the plain, literal meaning of the statute meant the application of the control test is obligatory.
SC disagreed: "Corporate layering" is admittedly allowed by the FIA; but if it is used to
circumvent the Constitution and pertinent laws, then it becomes illegal. Further, the pronouncement of
petitioners that the grandfather rule has already been abandoned must be discredited for lack of basis.
Petitioners are not Filipino since MBMI, a 100% Canadian corporation, owns 60% or more of their
equity interests. Such conclusion is derived from grandfathering petitioners’ corporate owners, namely:
MMI, SMMI and PLMDC. The "control test" is still the prevailing mode of determining whether or not a
corporation is a Filipino corporation, within the ambit of Sec. 2, Art. II of the 1987 Constitution, entitled
to undertake the exploration, development and utilization of the natural resources of the Philippines.
When in the mind of the Court there is doubt, based on the attendant facts and circumstances of the
case, in the 60-40 Filipino-equity ownership in the corporation, then it may apply the "grandfather
rule."
TITLE: PHILIPPINE NATIONAL BANK VS. COURT OF APPEALS, RITA GUECO TAPNIO, CECILIO GUECO AND
THE PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY, INC.
REFERENCE: 83 SCRA 237
FACTS
Mrs. Tapnio had an export sugar quota of 1,000 piculs for the agricultural year which she did not
need. She entered into a contract of lease of sugar allotment to allow Mr. Tuazon to use said quota for
the consideration of P2,500.00. At the time of the agreement, Mrs. Tapnio was indebted to the PNB.
Her indebtedness was known as a crop loan and was secured by a mortgage on her standing crop
including her sugar quota allocation for the agricultural year corresponding to said standing crop. This
arrangement was necessary in order that when Mrs. Tapnio harvests, the P.N.B., having a lien on the crop,
may effectively enforce collection against her. Her sugar cannot be exported without sugar quota
allotment. Sometimes, however, a planter harvest less sugar than her quota, so her excess quota is utilized
by another who pays her for its use. This is the arrangement entered into between Mrs. Tapnio and Mr.
Tuazon regarding the former’s excess quota.
Since the quota was mortgaged to the P.N.B., the contract of lease had to be approved by said
Bank. The branch manager of PNB in San Fernando, Pampanga required the parties to raise the
consideration of P2.80 per picul or a total of P2,800.00, which Tuazon accepted. However, the board of
directors required that the amount be raised to P3.00 per picul, in which case Tuazon informed the bank
that he was no longer interested to continue the the lease of sugar quota allotment in favor of defendant
Rita Gueco Tapnio. The result is that the latter lost the sum of P2,800.00 which she should have received
from Tuazon and which she could have paid the Bank to cancel off her indebtedness.
Eventually, Tapnio was sued by the insurance company Philamgen, who indemnified PNB in favor
of Tapnio, that the latter pay Philamgen. Tapnio filed a third party complaint against PNB where she
alleged that her failure to pay her debts was because of PNB’s negligence and unreasonableness. The CA
held that failure of the negotiation for the lease of the sugar quota allocation of Rita Gueco Tapnio to
Tuazon was due to the fault of the directors of the PNB. The refusal on the part of the bank to approve
the lease at the rate of P2.80 per picul which, as stated above, would have enabled Rita Gueco Tapnio to
realize the amount of P2,800.00 which was more than sufficient to pay off her indebtedness to the Bank,
and its insistence on the rental price of P3.00 per picul thus unnecessarily increasing the value by only a
difference of P200.00, inevitably brought about the rescission of the lease contract to the damage and
prejudice of Rita Gueco Tapnio in the aforesaid sum of P2,800.00.
Petitioner filed its MR but was denied by CA. Hence, this petition for Certiorari.

ISSUE
Whether or not the Corporation Bank (PNB) is liable to Tapnio?
RULING
YES.
The Supreme court said “As observed by the trial court, time is of the essence in the approval of
the lease of sugar quota allotments, since the same must be utilized during the milling season, because
any allotment which is not filled during such milling season may be reallocated by the Sugar Quota
Administration to other holders of allotments. There was no proof that there was any other person at that
time willing to lease the sugar quota allotment of private respondents for a price higher than P2.80 per
picul.
While PNB had the ultimate authority of approving or disapproving the proposed lease since
the quota was mortgaged to the Bank, the latter certainly cannot escape its responsibility of observing,
for the protection of the interest of private respondents, that degree of care, precaution and vigilance
which the circumstances justly demand in approving or disapproving the lease of said sugar quota. The
law makes it imperative that every person "must in the exercise of his rights and in the performance of
his duties, act with justice, give everyone his due, and observe honesty and good faith, This petitioner
failed to do.
Certainly, it knew that the agricultural year was about to expire, that by its disapproval of the
lease private respondents would be unable to utilize the sugar quota in question. In failing to observe the
reasonable degree of care and vigilance which the surrounding circumstances reasonably impose,
petitioner is consequently liable for the damages caused on private respondents. Under Article 21 of the
New Civil Code, "any person who willfully causes loss or injury to another in a manner that is contrary to
morals, good customs or public policy shall compensate the latter for the damage." The afore-cited
provisions on human relations were intended to expand the concept of torts in this jurisdiction by granting
adequate legal remedy for the untold number of moral wrongs which is impossible for human foresight
to specifically provide in the statutes.
A corporation is civilly liable in the same manner as natural persons for torts because the rules
governing the liability of a principal or master for a tort committed by an agent or servant are the same
whether the principal or master be a natural person or a corporation, and whether the servant or agent
be a natural or artificial person. All of the authorities agree that a principal or master is liable for every
tort which he expressly directs or authorizes, and this is just as true of a corporation as of a natural person,
A corporation is liable, therefore, whenever a tortious act is committed by an officer or agent under
express direction or authority from the stockholders or members acting as a body, or, generally, from
the directors as the governing body."
TITLE: REYNOSO VS. COURT OF APPEALS
REFERENCE: 345 SCRA 335 [GR No. 116124-25 November 23, 2000]
FACTS
In early 1960s, the Commercial Credit Corporation (CCC), a financing company and investment
firm, decided to organize franchise companies in different parts of the country, wherein it shall hold 30%
equity. Employees of the CCC were designated as resident managers of the franchise companies.
Petitioner Reynoso was designated as the resident manager of the franchise in Quezon City, known as the
Commercial Credit Corporation of Quezon City (CCC-QC).
CCC-QC entered into an exclusive agreement management contract with CCC whereby the latter
was granted the management and full control of the business activities of the former. Under the contract,
CCC-QC shall sell, discount and/or assign its receivables to CCC. Subsequently, however, this discounting
arrangement was discontinued pursuant to the so called DOSRI rule, prohibiting the lending of funds by
corporations to its directors, officers, stockholders and other persons with related interest therein.
On account of the new restrictions imposed by the Central Bank policy by virtue of the DOSRI rule,
CCC decided to form CCC Equity Corporation, a wholly-owned subsidiary, to which CCC transferred its 30%
equity in CCC-QC, together with 2 seats in the latter’s Board of Directors.
Under the new set-up, several officials of Commercial Credit Corporation, including petitioner
Reynoso, became employees of CCC-Equity. While petitioner continued to be the Resident Manager of
CCC-QC, he drew his salaries and allowances from CCCEquity. Furthermore, although an employee of CCC-
Equity, petitioner, as well as all employees of CCC-QC, became qualified members of the Commercial
Credit Corporation Employees Pension Plan.
As Resident Manager of CCC-QC, petitioner oversaw the operations of CCC-QC and supervised its
employees. The business activities of CCC-QC pertain to the acceptance of funds from depositors who are
issued interest-bearing promissory notes. The amounts deposited are then loaned out to various
borrowers. Petitioner, in order to boost the business activities of CCC-QC, deposited his personal funds in
the company. In return, CCC-QC issued to him its interest-bearing promissory notes.
A complaint filed by CCC-equity against petitioner which alleged that petitioner embezzled the
funds of CCC-QC which was used for the purchase of a house and lot. The property was mortgaged to CCC,
and was later foreclosed.
RTC dismissed the complaint for lack of merit and ordered CCC to pay Reynoso for damages.
Judgement remained unsatisfied, so Reynoso filed a motion for alias Writ of Execution.
Meanwhile, CCC became known as the General Credit Corporation, in which case the court issued an
Order directing General Credit Corporation to file its comment on petitioner’s motion for alias writ of
execution. General Credit Corporation alleges that that it was not a party to the case. GCC contends that
it is a corporation separate and distinct from CCC-QC and, therefore, its properties may not be levied upon
to satisfy the monetary judgment in favor of petitioner. In short, respondent raises corporate fiction as its
defense.
ISSUE
Whether or not the judgement in favor of the petitioner may be executed against respondent
General Credit Corporation?
RULING
 YES.
A corporation is an artificial being created by operation of law, having the right of succession and
the powers, attributes, and properties expressly authorized by law or incident to its existence. It is an
artificial being invested by law with a personality separate and distinct from those of the persons
composing it as well as from that of any other legal entity to which it may be related. It was evolved to
make possible the aggregation and assembling of huge amounts of capital upon which big business
depends. It also has the advantage of non-dependence on the lives of those who compose it even as it
enjoys certain rights and conducts activities of natural persons.
Any piercing of the corporate veil has to be done with caution. However, the court will not hesitate
to use its supervisory and adjudicative powers where the corporate fiction is used as an unfair device to
achieve an inequitable result defraud creditors, evade contracts and obligations, or to shield it from the
effects of a court decision. The corporate fiction has to be disregarded when necessary in the interest of
justice.
The defense of separateness will be disregarded when the business affairs of a subsidiary
corporation are so controlled by the mother corporation to the extent that it becomes an instrument or
agent of its parent. But even when there is dominance over the affairs of the subsidiary, the doctrine of
piercing the veil of corporate fiction applies only when such fiction is used to defeat public convenience,
justify wrong, protect fraud or defend crime.
It is obvious that the use by CCC-QC of the same name of Commercial Credit Corporation was
intended to publicly identify it as a component of the CCC group of companies engaged in one and the
same business, i.e., investment and financing. Aside from CCCQuezon City, other franchise companies
were organized such as CCC-North Manila and CCC-Cagayan Valley.
The organization of subsidiary corporations as what was done here is usually resorted to for
aggrupation of capital the ability to cover more territory and population, the decentralization of activities
best decentralized, and the securing of other legitimate advantages. But when the mother corporation
and its subsidiary cease to act in good faith and honest business judgement, when the corporate device
is used by the parent to avoid its liability for legitimate obligations of the subsidiary, and when the
corporate fiction is used to perpetrate fraud or promote injustice, the law steps in to remedy the
problem. When that happens, the corporate character is not necessarily abrogated. It continues for
legitimate objectives. However, it is pursued in order to remedy injustice, such as that inflicted in this
case.
The discounting agreements through which CCC controlled the finances of its subordinates
became unlawful when Central Bank adopted the DOSRI prohibitions. Under this rule the directors,
officers, and stockholders are prohibited from borrowing from their company. Instead of adhering to the
letter and spirit of the regulations by avoiding DOSRI loans altogether, CCC used the corporate device to
continue the prohibited practice. CCC organized still another corporation, the CCC-Equity Corporation.
However, as a wholly owned subsidiary, CCC-Equity was in fact only another name for CCC. Key officials
of CCC, including the resident managers of subsidiary corporations, were appointed to positions in CCC-
Equity.
It is very obvious; that respondent “seeks the protective shield of a corporate fiction whose veil
the present case could, and should, be pierced as it was deliberately and maliciously designed to evade
its financial obligation of its employees.
 If the corporate fiction is sustained, it becomes a handy deception to avoid a judgment debt and
work an injustice.
TITLE: SAW VS. COURT OF APPEAL
REFERENCE: G.R. No. 90580 April 8, 1991.
FACTS
A collection suit with preliminary attachment was filed by Equitable Banking Corporation against
Freeman, Inc. and Saw Chiao Lian, its President and General Manager. The petitioners moved to intervene,
alleging that (1) the loan transactions between Saw Chiao Lian and Equitable Banking Corp. were not
approved by the stockholders representing at least 2/3 of corporate capital; (2) Saw Chiao Lian had no
authority to contract such loans; and (3) there was collusion between the officials of Freeman, Inc. and
Equitable Banking Corp. in securing the loans. The motion to intervene was denied, and the petitioners
appealed to the Court of Appeals.
Meanwhile, Equitable and Saw Chiao Lian entered into a compromise agreement which they
submitted to and was approved by the lower court. But because it was not complied with, Equitable
secured a writ of execution, and two lots owned by Freeman, Inc. were levied upon and sold at public
auction to Freeman Management and Development Corp.
The Court of Appeals sustained the denial of the petitioners’ motion for intervention, holding that
“the compromise agreement between Freeman, Inc., through its President, and Equitable Banking Corp.
will not necessarily prejudice petitioners whose rights to corporate assets are at most inchoate, prior to
the dissolution of Freeman, Inc. and intervention under Sec. 2, Rule 12 of the Revised Rules of Court is
proper only when one’s right is actual, material, direct and immediate and not simply contingent or
expectant.
ISSUE
Whether or not the denial of petitioner’s motion for intervention was proper?
RULING
YES.
Petitioners have no legal interest in the subject matter in litigation so as to entitle them to
intervene in the proceedings below.
In a case, the court held that, “As clearly stated in Section 2 of Rule 12 of the Rules of Court, to be
permitted to intervene in a pending action, the party must have a legal interest in the matter in
litigation, or in the success of either of the parties or an interest against both, or he must be so situated
as to be adversely affected by a distribution or other disposition of the property in the custody of the
court or an officer thereof.”
To allow intervention, [a] it must be shown that the movant has legal interest in the matter in
litigation, or otherwise qualified; and [b] consideration must be given as to whether the adjudication of
the rights of the original parties may be delayed or prejudiced, or whether the intervenor’s rights may
be protected in a separate proceeding or not. Both requirements must concur as the first is not more
important than the second. The interest which entitles a person to intervene in a suit between other
parties must be in the matter in litigation and of such direct and immediate character that the intervenor
will either gain or lose by the direct legal operation and effect of the judgment. Otherwise, if persons not
parties of the action could be allowed to intervene, proceedings will become unnecessarily complicated,
expensive and interminable.
 The words “an interest in the subject” mean a direct interest in the cause of action as pleaded,
and which would put the intervenor in a legal position to litigate a fact alleged in the complaint, without
the establishment of which plaintiff could not recover.
In the present case, the interest, if it exists at all, of petitioners/movants is indirect, contingent,
remote, conjectural, consequential and collateral. At the very least, their interest is purely inchoate, or in
sheer expectancy of a right in the management of the corporation and to share in the profits thereof and
in the properties and assets thereof on dissolution, after payment of the corporate debts and obligations.
While a share of stock represents a proportionate or aliquot interest in the property of the corporation,
it does not vest the owner thereof with any legal right or title to any of the property, his interest in the
corporate property being equitable or beneficial in nature. Shareholders are in no legal sense the
owners of corporate property, which is owned by the corporation as a distinct legal person.
TITLE: SIA VS. COURT OF APPEALS
REFERENCE: 166 SCRA 263
FACTS
Jose O. Sia (appellant herein), President and General Manager of the Metal Manufacturing of the
Philippines, Inc. for and in its behalf, applied for and was granted a Letter of Credit with the Continental
Bank, Manila to cover the importation of 100 pieces of Safe Deposit Locks No. 4440. A marginal deposit
was made with the Bank and the Letter of Credit was confirmed with its foreign correspondent.
Thereafter, appellant, for and in behalf of the Metal Manufacturing of the Philippines, Inc., executed a
trust receipt in favor of the Continental Bank. When the said trust receipt became due and demandable,
the Metal Manufacturing of the Philippines, Inc. failed to pay or deliver the merchandise to the Bank
despite the latter’s demands.
Consequently, an information for estafa was filed against petitioner for violation of the trust
receipt agreement executed by him in his capacity as President and General Manager of Metal
Manufacturing of the Philippines, Inc. in favor of Continental Bank.

The trial court entered a verdict of guilty beyond reasonable doubt for the offense of estafa.

CA affirmed with the modification to the effect that the accused is to indemnify the offended
party. A motion for reconsideration followed, but was denied for lack of merit. Hence, this petition for
review on certiorari.
ISSUE
Whether or not petitioner Sia, as President and General Manager of Metal Manufacturing of the
Phil., Inc. having acted for and on its behalf in executing the Trust Receipt Agreement in favor of the
Continental Bank may be held liable for the crime charged?
RULING
NO.
The court ruled that if the acts herein involved occurred after 29 January 1975, petitioner would
be criminally liable for estafa under paragraph 1(b), Article 315 of the Revised Penal Code, pursuant to
the following provisions of PD 115 covered by a trust receipt to the extent of the amount owing to the
entruster or as appears in the trust receipt or to return said goods, documents or instruments if they were
not sold or disposed of in accordance with the terms of the trust receipt shall constitute the crime of
estafa, punishable under the provisions of Article 315, par 1(b) of the Revised Penal Code. If the violation
or offense is committed by a corporation, partnership, association or other juridical entities, the penalty
shall be imposed upon the directors, officers, employees or other officials or persons therein
responsible for the offense, without prejudice to the civil liabilities arising from the criminal offense.